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Wednesday, April 25, 2012

Affinity Scam Part 10 - the Trial begins: Gerald Durand and Chris Pettengill, and their relationship to David Strom

In January 2011, a member of the Minnesota U.S. Attorney's office attended an investment seminar produced and conducted by Chris Pettengill and Gerald Durand, and some of their new 'associates'. That attorney concluded, based on the content verbally presented at the seminar and a review of the printed materials from it, that Pettengill and Durand were conducting (with only minor alterations of names) the same Affinity Scam as the one they participated in with Trevor Cook, and that this was only the most recet iteration of that scam, apparently the third. As a result of attending that seminar, a search warrant was sought and executed. Chris Pettengill cooperated with the U.S. Attorney's office, he pled guilty in June 2011 to securities fraud, wire fraud, and money laundering.
Dan Browning of the Star Tribune has impressed me deeply with his fairness, his thoroughness and his competence as an investigative reporter. Having become more familiar with his reporting is an unexpected benefit of having researched and written about this Affinity Scam. I encourage anyone coming lately to the story to read our earlier entries in this series. While Dan has written about the original scam, our interest has focused more on the ancillary subsequent bogus investment scams, how they relate to right wing political figures and how they relate to the further exploitation of conservatives in Minnesota and elsewhere.

The trial appears to be the result of a very careful and methodical, detailed accounting of how Trevor Cook, assisted by Chris Pettengill, ripped off people through radio shows and investment seminars. Cook and Pettengill have pleaded guilty, and to varying degrees have cooperated with the feds in exchange for sentences that will allow them to avoid dying in jail.

Pettengill and Durand split from the Cook ponzi scheme in July 2008; from that time onward, they appear to have received a monthly payout of at least $15,000 a month to avoid competing for the same scam victims while Pettengill and Durand operated a nearly identical (allegedly) bogus investment scheme separately. Another party to the group, Bo Beckman appears to have kept a foot in both camps, but also seems to have continued to scam primarily conservatives. Pettengill and Durand used the conservative Salem communications stations, which share a manager, apparently to operate their new version of the affinity scam - an affinity scam is where someone uses a common interest or connection, in this case being conservative politically, to gain the trust of investors they were fleecing. The similarities were the use of radio to attract people to their bogus investment seminars for recruitment, the use of numerous similarly named false front business that never existed in any physical location, and the representation of themselves as qualified by exaggerated experience and credentials to give investment advice. The investments promoted by their seminars do not appear at any time to have been legitimate.

They first operated on the Golden Valley Salem station KYCR, and then moved to sister station WWTC. According to David Strom, the manager of the stations hooked Pettengill and Durand up as sponsors for the David Strom show beginning in December 2008, with broadcasting beginning in January 2009. Regular guests from the Minnesota Free Market Institute and the Taxpayers League of Minnesota appeared, apparently on Gerald Strom's crooked nickel, adding to the ultra-conservative cred sought by Durand and Pettengill to lure new investors to their seminar. This doesn't appear to have discouraged the Minnesota Free Market Institute, who put Strom back on their payroll after he had bounced around from the Emmer campaign, to the legislature, and then on to another job apparently for being right wing, Politics in Minnesota, which also produces the Capital Report.
In other words, David Strom was perfectly connected to give political cover and credibility to Durand and Pettengill, as well as access to their schemes to solicit investors for their bogus investment seminars.

In addition to his right wing cronies to provide conservative credibility and respectability, Strom not only had Durand and Pettengill as his regular 'guests' without identifying them as the people actually paying for the show to run - if you can be a guest when it's your party - he also promoted the investment seminars as a front man, on his radio show, in person at the seminars, and on his web site. The reality is that while Strom and his wife, the producer of the show, listed a fake entity as the shows sponsor, an entity that appeared to be a non-profit educational organization based in Colorado, there was no such entity. Following a pattern that was used repeatedly in the Cook ponzi scheme affinity scam, the entity had a name that was similar to a genuine non-profit financial education entity that was well known and widely regarded. I double checked by having my local library reference librarians check to see if they could find the entity listed by Salem and the Strom show. They believed because of the similarity that it might be the same entity, but could not confirm it My co-blogger Pen contacted the legitimate entity to confirm that they were NOT the sponsors of the David Strom show; it required only a very brief phone call of a few minutes, and a matter of seconds in an internet search.
Strom promoted this false entity that was a misleading name, with an announcement at the beginning of every show and on his website for the show. His explanation for not correcting it for nine and a half months was that it was an unimportant correction that he never bothered to make. At one point, he blamed his wife for not correcting it.

The reality was that Gerald Durand wrote the checks, checks which did NOT come from an entity but came from him. The station knew the information was incorrect; Strom knew the information was incorrect. Durand appears to have used the money from the $15,000 a month paid to him by Trevor Cook out of the ponzi scheme to front the show as a vehicle to troll for fresh victims to fleece. Neither Pettengill or Durand had any active, valid financial credentials pertaining to the content of the show, but they were consistently represented to the listeners by Strom to be experts, to be reliable authorities. A quick check of state records in an online public data base that took less than 2 minutes showed that the businesses only existed on paper, and were formed the day before the first broadcast with Strom.

In point of fact, Strom represented to us that he and his wife didn't check out their new partners adequately. Not before doing business, not when they clearly were aware that the entity they listed as sponsor wasn't the entity writing the checks, and not even after those checks stopped following the revelation of the affinity scam investigation in the Star Tribune. From statements made in conversation, it was clear that Strom did not correct statements made by Durand and Pettengill that Strom knew to be false. David Strom appears to have been perfectly willing to go along with Durand and Pettengill, so long as he was getting paid. Sometimes that was willful ignroance, effectively a deliberate sticking his thumbs in his ears while going la-la-la-la and other times it was a deliberate sin of omission, of remaining silent in support of a lie.

I do believe that despite his writing on tax policy, in reality David Strom is bone ignorant on most areas of economics, but none more so than the financial industry sector of the economy. That didn't stop him from pretending to a greater knowledge on the air than he really had, which assisted Durand and Pettengill's appeal to gain investors to attend and possibly put money into their bogus investment seminars. While Strom may not have fully known or understood that Pettengill and Durand were running a fake investment opportunity in their seminars, it was obvious to my co-blogger Penigma and myself that the investment scheme and the statements made on the radio show were bogus. The element of risk was conspicuously understated, and frequently omitted from their radio statements.
That Strom and his wife were choosing to look the other way became even more evident when they hung up on the Trevor Cook ponzi scheme victims seeking to speak with Durand and Pettengill during the radio show. Even after the money stopped flowing from Durand and Pettengill, per the records seized from Durand through the execution of search warrants, the documents coming out in the press from the Browning investigation indicated a range of financial misconduct by Pettengill, notably instances of home equity stripping from unqualified elderly investors. In an interview with us, Strom insisted that at no time did he ever do any research or feel a need to do research on his show partners. His explanation that he assumed because he was hooked up by the station manager that they were good guys, nice men who would never take advantage of anyone persisted despite the newspaper accounts of victims describing their relationships with Durand and Pettengill as well as his refusal to speak with the victims.

I would argue that any reasonable and prudent person would at least check the credentials of their partner, and that moral and ethical responsibility at the very least requires doing more than asking someone if they are a crook or not. Clearly, no crook is going to admit that they are swindlers, if it would make continuing to operate more difficult. What made much more sense was that Strom was continuing with Pettengill and Durand because he was trying to get paid after the money stopped, money that had been paid by Trevor Cook to Durand and Pettengill to keep them away from the Cook scam 'investor' victims, a sort of non-competition-among-crooks payment, up until July 2009.
Strom continued to promote the investment seminars introducing Pettengill and Durand, and by his appearance and his radio show, continued to give his approval and endorsement to people who knew Strom's very public conservative credentials from his regular appearances on KSTP television, and on various other news / current events programming in Minnesota. The last seminar of which I am aware was in August 2009. Strom had been a very public face for several conservative entities as well as speaking on a range of conservative political activities as an authority.

Apparently at NO time, in his efforts to get paid by continuing on as if nothing was wrong, did Strom or his wife give any concern to the risks to listeners who were being recruited to attend Pettengill and Durand's seminars. The radio show existed so far as Durand and Pettengill were concerned SOLELY to generate fresh investors, as they had used radio programming with Pat Kiley when they worked the same scam with Trevor Cook. The only interest in continuing with Durand and Pettengill that Strom had, in my opinion, was to try to get as much money out of the deal as possible, and anyone else, rank and file conservatives who would be assured by his endorsement and encouragement be damned. Strom made it very clear to Pen and I that it was not his responsibility to act in the interests of his listeners or investors.

Caveat Emptor! Buyer beware!

Too damned bad for anyone who trusts what they hear or the assurances of someone as an expert or authority vouched for by a public figure. While it is not the responsibility of public figures to sort out truth from lies for the public, it is a different thing in my opinion actively to assist in misleading them. The assurance of how expert Durand and Pettengill represented themselves was one such misrepresentation; that they appeared to be acting on behalf of an old and established very highly regarded non-profit financial education institution was another.

I think it is morally and ethically bankrupt - not unlike the MN GOP appears to be morally and financially bankrupt - for David Strom to use his name and reputation, substantially to misrepresent the credentials of crooks week after week, and then claim you have no responsibility for people attending bogus investment scheme seminars you are promoting , claiming caveat emptor.
When you become part of the scheme, no matter how peripheral, when you legitimize it, you have a role in gaining the understanding and trust of those people. It does become your moral and ethical responsibility if you are assisting someone to mislead people who you have encouraged to rely on your authority, especially if doing so puts them in a situation to be exploited or swindled.
The court appointed Receiver for the victims of the original Cook/Kiley/Beckman/Pettengill/Durand ponzi scheme has been pursuing claw backs, successfully. I have been speaking with the victims, although those who are testifying this week and last week at the trial are having to be circumspect in their comments for a little while longer until their turn on the stand is completed. I hope to be speaking at greater length as well with the Receiver, about pursuing a claw back of the money that appears to have gone directly from the Ponzi scheme funds from Cook, through Pettengill and Durand to David Strom and his wife and Salem radio. Salem should not be allowed to keep the ill gotten gains of scam artists who swindled the money from conservative victims. Their callous greed in looking the other way at Durand and Pettengill for so long is consistent with far too many other (alleged) scam artists and financial frauds they allow to broadcast on their stations to their conservative 'pigeons', figures like Robert Chapman of the 'International Forecaster' who has run afoul of the SEC for stock manipulation scams involving penny stocks the SEC claims he promoted, artificially inflated the market price, and then dumped, ripping off the people he had persuaded to buy the worthless stock he sold at an enormous profit.

It took no great expertise to recognize that Durand and Pettengill were not legitimate, listening to their appearances on the Strom show. It took no great expertise as a researcher to discover the disciplinary problems in the past for illegal and unethical conduct, as well as their lack of current credentials at the time they broadcast, or that one-time credentials that had been lost due to their conduct. It took no great research either to discover that the financial entities used as fronts by Durand and Pettengill were fakes, convenient fake fronts that did not stand up to even casual scrutiny very well. It took very little expertise or effort to discover that Pettengill and Durand had created no less than 18 or 19 entities with similar names, consistent with their previous scam pattern of creating fake entities that were intended to be confused with legitimate ones.

I checked out the address personally for those multiple businesses that didn't exist in the office of a suburban insurance office where Pettengill nominally worked. The insurance office owner's name appeared with Pettengill's and Durand's in the documents of the rip-offs of the affinity scam victims. But it was just as easy to discover that these were entities without so much as a business telephone number either. What legitimate business lacks any telephone number, much less a published one?

I am not employed as a professional researcher, nor did I have a financial interest in the activities of Durand and Pettengill. But I found out more in less than 10 minutes, and with only the most minimal efforts, than David Strom and his wife did over a period of months where their reputations and income were involved, as well as other people who were their audience potentially at risk. It is a reflection on the ethical standards of the Minnesota GOP (or lack thereof) and their political. cronies and associates that two people who worked so hard at willful ignorance out of apparent greed could be so consistently rewarded with cushy good paying jobs AS RESEARCHERS after their deliberate lack of research, and lack of telling every day ordinary conservatives, like their audiences the truth. Pettengill or Durand, even after a grand jury was empaneled to review their involvement. This was not an example of giving anyone the benefit of the doubt. it was entirely about trying to extract every possible dime, and anyone else be damned.

According to testimony in the trial given today, approximately $120,000 a month was being spent on just radio time at the peak of the Trevor Cook led Affinity Scam. According to the U.S. Attorney's office, which appears to have an airtight case, Chris Pettengill and Gerald Durand were key players in running the scam and in profiting from the swindled investors. It was a very lucrative swindle; none of the defendants, previous or current, appear to have been successful either for a period of time before the scam began, or after leaving it other than their attempts to run subsequent bogus investment seminars using radio shows to gin up interest. They all appear to have had expensive tastes, including vices such as routinely consuming excessive amounts of alcohol to the point of passing out, and spending large amounts of money gambling, particularly at poker, and on strippers and prostitutes.
Looking at the current disarray of the MN GOP, particularly their financial disasters where the leadership appears to have spent money, including on salaries, that they did not have. Some individuals seem to have made out like the proverbial metaphorical bandits. Some like David Strom and his wife appear to have gone forward without anyone looking askance at their misadventure with swindlers. Maybe it was even considered a plus in order to work for the GOP, to have such vivid evidence of a calloused and non-functioning conscience. Because I'm not aware to this day of David Strom or his wife having apologized to or shown the slightest concern for those people they helped sucker for swindlers. I'm not aware of them having expressed any concerns for the apparently dirty swindle money that went into their pockets that was conned from the victims of the Affinity scam.
They just seem to go from one political patronage job to another, preferably ones on the taxpayer nickel, since the MN GOP is so deep in debt.

As the trial plays out, each of the swindlers claims that they weren't responsible. No one held a gun to their heads - Gerald Durand, Pat Kiley, or Bo Beckman - to give pretty lying speeches to investors or in some instances to go on the radio and lie. As the trial is playing out - I provide the links below to the STrib and PiPress coverage of it - I am reminded of those other people who were quite willing to blame someone else for their own participation instead of taking ethical responsibility, other people not on trial who were perfectly willing to profit from the exploitation and straight up swindle of others so long as they could gain from it.

Whether it is the ALEC corruption of unregistered lobbying, and big corporate money directly and indirectly benefiting conservative legislators to pass legislation written by the corporations it is intended to regulate or tax, the word principled doesn't belong with the word conservative in terms of the people involved in our politics and our government.

Investors testify how they lost money in massive fraud

Investors ranging from a retiree living on Social Security to a former top executive with Valspar Corp. told jurors in a Minneapolis federal courtroom Monday how they ended up investing in what turned out to be a massive Ponzi scheme run by since-convicted fraudster Trevor Cook.
Marguerite Witte, 73, of Meadview, Ariz., said she first learned about Cook's currency investment program from a radio program hosted by defendant Patrick Kiley, 73, of Minneapolis. Kiley's program, "Follow the Money," promised that investors would profit despite the chaos of the marketplace, she said.
"I felt kind of fearful," recalled Witte, whose husband died in 2005.
The investors appeared on the second day of testimony in the trial of former Cook associates Jason "Bo" Beckman, Gerald Durand and Kiley, all of whom blame Cook for the fraud. Cook is serving 25 years in federal prison after pleading guilty.
Read the whole story; keep a box of tissues with you. What happened to these people is heartbreaking, in the way they were lied to and frightened into handing over their money.

The first victims to testify in the trial against three associates of Trevor
Cook accused of operating a $194 million Ponzi scheme were relatively
unsophisticated investors.
But the scheme also pulled in more experienced investors, like Robert Pajor,
75, the former president and one-time chief operating officer of Valspar Corp.,
a large, publicly traded Minneapolis-based paint company. He ultimately lost
about $2.1 million investing
with Jason "Bo" Beckman, he testified Monday, April 23.
Beckman, 42, is on trial with Gerald Durand, 61, and Pat Kiley, 73, in
federal court in Minneapolis. They are charged with wire and mail fraud, money laundering and conspiracy. They were all associated with
Cook, who pleaded guilty to fraud and tax charges two years ago and is serving a
25-year sentence.

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